AB Treatment Bank Supervision of the Excess Reserves of Non-financial Payment Institutions

Abstract

This paper finds the current Chinese regulatory regime for the excess reserves of non-financial payment institutions is similar to the AB treatment. The supervisory bank A has primary responsibilities for the work, and bank B has secondary responsibilities. This study assumes that supervisory banks can access different types of private information with different probabilities and build a three-tier hierarchy—central bank, supervisory banks, payment institutions—in a game-theoretical model. The results show that AA treatment (both banks have similar responsibilities) is generally better than AB treatment for the social welfare utility under the former is greater than the latter.